Pay, Technology and the Cost of Worker Absence

Abstract

Conventional studies of absenteeism concentrate on labour supply. In this paper we analyse records of worker behaviour which enable us to investigate whether or not demand side effects exist. Using a compensating differentials model, we study how the shadow cost of absenteeism varies across firms which operate different technologies, (The shadow cost is the amount a firm would be prepared to pay to achieve a given small reduction in its absence rate.) It is to be expected that pay for a less reliable workforce would be less than for a more reliable one, and we confirm this expectation. More subtle is the rate at which remuneration should fall with increased unreliability. We claim that just-in-time technology implies that absence will be more expensive for firms adopting it. The loss of productivity when absence occurs will be greater for such firms than for others, and the wage premium for reliability should thus be higher for such firms. Using a matched employee/employer dataset from France, we are able to establish the existence of statistically significant differences of the kind predicted by the theory, and estimate the shadow cost of worker absence for firms operating different kinds of technology.